Bought 499 Shares of Advanced Nutraceuticals (ANII.OB)

As part of my free trial of Contributor’s Corner, last week I bought 499 shares of Advanced Nutraceuticals (ANII.OB). ANII makes vitamins and supplements, and recently filed for a 500-to-1 reverse stock split. It’s doing this order to get under 300 shareholders and thus avoid all the paperwork involved with Sarbanes-Oxley compliance. Now, this could be a good or bad thing in people’s eyes, but I’m not focusing on that.

The original price was $3.20, but they raised it to $4, which shows that they really want to get rid of the smaller investors by giving them a good reason to sell. I also like that this is a profitable company with a reasonable P/E ratio, so even if this somehow falls through this stock won’t disappear. There is a vote to approve this reverse split scheduled for September 8th, but sometimes the dates get pushed back. George says to estimate about 6 months to actually get the cash in your account. 16% gain in 6 months? I’m game.

But please don’t buy this stock just because I did, I am pointing it out because this is something I’m doing with my money, and you can do your own research and see if it’s right for you.

Full disclosure: Both George and I own 499 shares of ANII. I bought at about $3.42 on average. I think he bought at $3.10 though, the punk! I guess that’s why he runs the site and not me

Comments

Hey man, good luck to you. Just to give you some piece of mind: I did a similar deal to this some years ago where a company was offering to buy shares from anyone who owned less than 100 shares. I consequently bought 97 shares and cashed in about 3 months later with a decent little gain. If you are confident, you might try it in your wife’s account also, that way she can own 499 shares also.

I am not sure thaat I understand completely. In particular, when will the company buy back shares? Also, if we buy with a discount broker like Scottrade or Sharebuilder, what will happen when they buy at $4? Do we have to sell it back at the right time, or is it bought back automatically and converted to cash in our account?

Do you have any good links to learn about voluntary delistings and reverse stock splits?

Jonathan, which discount broker did you use for this trade? I am currently with TDAmeritrade. For OTC stocks, broker assisted phone order is required, which increases commission cost considerably. Who has the best deals for trading OTC stocks? Thanks.

If this was a true ‘going private’ thing instead of a reverse split and ALL shares were going to be bought back at $4, then yes, the price would probably be very very close to $4.

Actually, this information has been out for a while. It’s been $3.45 for over a week. The whole idea is that this is only good for small amounts of money. No big investment group is going to buy 499 shares of this for $300. Thus, these are great for smaller investors. Warren Buffett used to do these transactions when he was younger.

I’m still learning about this whole process as well, but here goes:

I bought with Scottrade online with one of my free referral trades. OTC stocks may cost more with some brokers. I don’t know about the best broker for OTC stocks.

1) The company has filed for this reverse split, it has not happened yet. But there hasn’t been much shareholder opposition, and they have set a shareholder vote date on 9/8 already.

2) It must go to vote and be approved. Then it’ll take a few months to pan out.

3) Then for everyone with less than 500 shares, your broker should cash them out at $4 – shares will disappear, and you’ll get cash into your account.

4) The downside of course is if it isn’t approved. Then you’ll have to decide whether to sell soon or keep it for the long run. This is a profitable company, so the downside isn’t so bad. And it’s also pretty far down the path.

If people are going to buy this, please set a limit order for something reasonable between the bid and the ask. Note the large bid/ask spread in this low-volume stock.

The reason why it’s not at $4 right now is because of the time value of money, as “bigmouth” says, the profit of $294 in six months may seem as not worth it for some (which is true). When you combine that with the risk that this deal won’t go through, the present value of a buyback at $4 is priced into the stock right now.

“In particular, when will the company buy back shares?”
Advanced Nutraceuticals will not buy back shares per se but will reverse split their shares and instead of providing fractional shares for holders of less than 500 shares they will provide $4 in cash for each share. Therefore, cash will be paid out at the completion of the reverse split.

“Also, if we buy with a discount broker like Scottrade or Sharebuilder, what will happen when they buy at $4?”
If those brokers don’t screw things up, automagically cash will appear in your account several weeks after the completion of the reverse split. Some brokers may charge a fee for this but I know Firstrade charges no fees for receiving cash from a reverse split.

“Do we have to sell it back at the right time, or is it bought back automatically and converted to cash in our account?”
After the reverse split, if you hold less than 500 shares instead of getting a fractional share you will get cash delivered to your account.

“Do you have any good links to learn about voluntary delistings and reverse stock splits?”
You may want to look through all my old posts under the category of Going Private Transactions. There is also a Fool article by Bill Mann from a few years ago that discusses these types of transactions.

Great questions! I hope that helps clear things up. It takes some practice to really understand how this transactions work since each one is slightly different. I’ve been investing in these opportunities for about 2 years now and have found them to be quite rewarding.

What an ingenius way to avoid a tender offer and essentially force everyone to cash out who isn’t an officer!!

Someone said “shareholders still have to approve the split on September 8th”, but that is FALSE.

The President/CEO/Founder Reddy Pailla owns 53% of the outstanding shares, he + the other officers own 70% of the outstanding shares. Since they are the ones creating this offer there is no vote per se, they easily constitute a quorum and even if every single non-officer shareholder showed up and voted against the split, the split would still pass. It’s actually just an ingenius way to de facto force a tender offer. The difference is a tender offer is voluntary on a per-share basis, this will pass as long as there is a quorum and a majority voting for the reverse split. Which there is. If you read the EDGAR filing

“The filing persons, who hold approximately 69% (not including any shares that may be acquired pursuant to the exercise of outstanding stock options) of our outstanding common stock, have indicated that they intend to vote in favor of the reverse stock split.******** Accordingly, approval of the going private transaction is assured without obtaining the vote of any of our other shareholders. *********”

They had done a tender offer in the middle of 2005 for $4.25 per share versus $3.50 market price but only a very small portion of the non-officers they were targeting with the tender took up the offer. This basically forces anyone with more than 499 shares to drop to 499 shares or fewer unless they want to end up wtih NO liquidity and no way to cash out. Then those with 499 shares or fewer are cashed out. It’s a friggin ingenius way to consolidate the company without having to make a decent tender offer!

No on CENF, but maybe I should have – nice jump today due to progress towards the tender offer.

It depends. Some companies have been strict and rejected multiple accounts under the same name and address. To be safe, you may want to buy it under your spouse’s name, kid’s name, or so forth. Or they may not catch you.

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